I’m liking energy more and more with each passing day.
And the bull thesis couldn’t be simpler.
It’s a raging bull market for stocks around the world. It’s being led by offense.
Internals continue to improve.
And like any bull cycle, as time passes and the market grinds higher, it drags a growing list of non-performers higher with it.
Some call it rotation, but it’s really just a broadening of participation over longer timeframes.
What I mean is that more groups join the party as the bull market progresses. The ones that had previously not been working, start working. We see it every time.
In bull markets, the laggards catch up to the leaders. And not vice versa.
And it’s happening now, isn’t it?
Look at international markets. Even the worst-performing regions, like Southeast Asia and South America, are now working. They’re actually outperforming in the short-term.
And in the US, look at old laggards like small-caps, speculative growth, and transports. They are working too, and putting in some catch-up moves to the broader market.
So, I guess my question is… why not energy?
Why shouldn’t this base in the Large Cap Energy Sector SPDR $XLE resolve to the upside?
We’ve already seen plenty of similar bases erupt higher this cycle.
In assets and indexes far and wide, from MSCI EAFE $EFA, to Financials $XLF, and even Gold $GLD.
I think Energy will do the same thing.
And why shouldn’t that move start right here and right now?
And we’re seeing a similar pattern on a relative basis. Here’s Equal Weight Energy vs the Equal Weight S&P 500:
While price is making new lows, we’re not getting any follow-through reaction at the breakdown level of this top. Meanwhile, momentum is sporting a bullish divergence. This one has a scoop ‘n score written all over it.
I’m looking for energy to dig in here and show some new leadership off these key levels.
Volatility has been spiking in both directions as well, which is common at inflection points. For example, XLE had both its best and worst single-day performances since 2020 last month.
I think a big move is brewing, and we want to position ourselves for it.
The following are our favorite ideas for expressing a bullish thesis on energy right now. The trades represent a diverse mix of exposure throughout the entire oil & gas industry and all its subsectors.
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